ArcelorMittal's (MT) Q2 Earnings Miss, Sales Beat Estimates

ArcelorMittal (NYSE:MT) recorded net loss of $447 million or 44 cents per share in second-quarter 2019, against net income of $1,865 million or $1.84 in the year-ago quarter. The results were impacted by higher raw material costs and lower steel prices.

Barring one-time items, adjusted earnings per share (EPS) came in at 49 cents, which missed the Zacks Consensus Estimate of 50 cents.

Total sales fell 3.6% year over year to $19,297 million in the quarter. Nevertheless, the figure beat the Zacks Consensus Estimate of $19,186.5 million.

Total steel shipments rose 4.8% year over year to 22.8 million metric tons. The upside can be attributed to higher steel shipments in Europe resulting from the acquisition of ArcelorMittal Italia as well as Asia Africa and CIS due to operational issues in Ukraine last year. These were offset by lower steel shipments in Brazil and NAFTA. Average steel selling prices fell around 8.8% year over year.

Segment Review

NAFTA: Crude steel production fell nearly 6% year over year to 5.6 million metric tons. Steel shipments fell around 6.3% year over year to 5.4 million metric tons. Sales fell nearly 5.6% year over year to roughly $5.1 billion. Average steel selling price declined nearly 2% year over year to $836 per ton.

Brazil: Crude steel production fell roughly 9.1% year over year to 2.8 million metric tons. Shipments fell around 1.6% year over year to 2.8 million metric tons. Sales declined nearly 3% year over year to $2.1 billion. Average steel selling price fell roughly 3.2% year over year to $705 per ton.

Europe: Crude steel production rose 9.6% year over year to 12.1 million metric tons in the reported quarter. Shipments rose around 12.3% year over year to roughly 11.8 million metric tons. Sales fell around 1.2% year over year to $10.4 billion, while average steel selling price fell 12% year over year to $704 per ton.

Asia Africa and CIS (ACIS): Sales fell around 10.5% year over year to $1.9 billion. Crude steel production totaled roughly 3.3 million metric tons, up around 5.3% year over year. Shipments rose around 4.1% year over year to 3.2 million metric tons. Average selling prices declined roughly 13.7% year over year to $536 per ton.

Mining: Iron ore production totaled 14.6 million metric tons, up from 14.5 million metric tons in the year-ago quarter. Coal production totaled 1.5 million metric tons, down from 1.6 million metric tons in the prior-year quarter. Sales rose 33.6% year over year to $1.4 billion.

Financials

At the end of the second quarter, ArcelorMittal had cash and cash equivalents of roughly $3.7 billion, up from $3.1 billion in the prior-year quarter. The company’s long-term debt was around $10.7 billion, up roughly 19.6% year over year.

Net cash from operating activities surged nearly 45% year over year to $1,786 million.

Outlook

On the basis of year-to-date growth and the current economic outlook, ArcelorMittal revised down its global apparent steel consumption (ASC) growth expectations for 2019. It now sees global ASC to increase in the range of 0.5-1.5%, revised from 1-1.5% growth expected earlier.

In the United States, the company projects ASC growth of flat to 1% in 2019 compared with the prior view of 0.5-1.5% growth. Healthy growth in non-residential construction demand is likely to be offset by ongoing weakness in automotive demand and a slowdown in machinery demand.

In Europe, ongoing automotive demand weakness stemming from lower exports is expected to dent ASC growth. These factors are expected to contract ASC between 2% and 1% in 2019 compared with previous view of contraction of 1% to flat.

In Brazil, ASC is expected to rise 1.5-2.5%, down from 3-4% growth expected earlier. In China, the company expects overall ASC to grow 0.5% to 1.5% in 2019 compared with flat to 1% expected earlier. Real estate demand is expected to drive the upside.

The company expects to witness higher steel shipments in 2019 on a year-over-year basis. Capital expenditure guidance for the year is trimmed to $3.8 billion for 2019 compared with $4.3 billion expected earlier.

Price Performance

ArcelorMittal’s shares have plunged 51.9% in the past year compared with 31.5% decline of the industry.

Zacks Rank & Key Picks

ArcelorMittal currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are SSR Mining Inc. (NASDAQ:SSRM) , Kinross Gold Corporation (NYSE:KGC) and Arconic Inc. (NYSE:ARNC) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SSR Mining has an expected earnings growth rate of 134.8% for 2019. The company’s shares have surged 58.1% in the past year.

Kinross has projected earnings growth rate of 100% for the current year. The company’s shares have gained 30.3% in a year’s time.

Arconic has an estimated earnings growth rate of 38.2% for the current year. Its shares have moved up 14.8% in the past year.

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